My workplace offers Roth 401K in addition to Traditional 401K. I read that Roth is good if you expect that you'll be in a higher tax bracket in retirement. I'm currently in 25% and I'll be in a higher tax bracket prior to retirement.

My question is what are the factors that one can consider he/she'll be in a higher or lower bracket in retirement?

My question is what are the factors that one can consider he/she'll be in a higher or lower bracket in retirement?

One major factor is the time gap (if any) between when you stop working and when you start collecting social security. A tricky issue with social security income is it can be completely tax-exempt or up to 85% of it can be taxed.

Will you be getting a pension in retirement?

Depending on how much you have saved up in traditional retirement accounts, RMDs may push you up into a higher tax bracket when you turn 70 1/2.

Another consideration is whether you itemize your tax deductions. For instance, if you're married, have kids and paying a mortgage on your house, you may be using tax deductions that you probably won't be eligible for anymore by the time you retire. On the other hand, you might have more medical expenses you can itemize in retirement then you can now.

The important numbers are the tax rate that you are paying now to invest in a Roth versus the tax rate you would be paying in the future on withdrawals from a Traditional account.

For most people, using a Traditional 401K and investing the tax savings in a Roth IRA works well. Caveats are if you expect your tax rate to substantially increase in the future (e.g. currently pre-med, pre-law) or if you expect a sizable pension or other source of income in retirement, both of which would favor more Roth. If you expect to retire early and live off 401k/IRA proceeds and do Roth conversions for a number of years, then that would favor more Traditional.

In the absence of a pension, the biggest issue is the size of your tax deferred accounts at retirement. This includes 401(k), 403(b), and Traditional IRA accounts.

I annuitized a good portion of my 403(b) accumulation, getting a 6.5% to 7% payout from those funds, vs the 3% to 4% swr some folks consider prudent.
So yes I have somewhat higher AGI in retirement than when working and am in 28% marginal bracket vs 25% back in the day.
It's not a bad situation, but it's good to be aware.

Once it became clear that my tax deferred accumulation was going to be "large", I might have been better off putting a part of my 403(b) contribution into the Roth 403(b) option we had.
But I wasn't thinking ahead too precisely back then.
Oh well...

My workplace offers Roth 401K in addition to Traditional 401K. I read that Roth is good if you expect that you'll be in a higher tax bracket in retirement. I'm currently in 25% and I'll be in a higher tax bracket prior to retirement.

What about in retirement? DW and I were in the 25% bracket just before I retired this past January, we're now in the 15% bracket due to the lack of my paycheck.

It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

Once a retiree is aged 70-1/2 they can eliminate the tax on their IRA distributions, up to $100,000 per year by taking advantage of the Qualified Charitable Distribution. This may also help to limit the amount of your SS benefit that is taxable.

My workplace offers Roth 401K in addition to Traditional 401K. I read that Roth is good if you expect that you'll be in a higher tax bracket in retirement. I'm currently in 25% and I'll be in a higher tax bracket prior to retirement.

What about in retirement? DW and I were in the 25% bracket just before I retired this past January, we're now in the 15% bracket due to the lack of my paycheck.

OK, so far so good, but what happens at age 70+ when SS and RMDs start?
Some folks don't plan ahead so well and then are SHOCKED at the increase in "unneeded" income and higher taxes...

My workplace offers Roth 401K in addition to Traditional 401K. I read that Roth is good if you expect that you'll be in a higher tax bracket in retirement. I'm currently in 25% and I'll be in a higher tax bracket prior to retirement.

My question is what are the factors that one can consider he/she'll be in a higher or lower bracket in retirement?

Thank you.

Current taxes. Ability to pay current taxes and lifestyle.
Future expected taxes. Ability to pay future taxes and lifestyle.

We were in similar situation as The Wizard. 15% in job life. 25% in retirement life.
In the few years we had 401k-ROTH, we did ~10%.
I paid to have a tax advisor. I also paid to have a FA to advised us on various financial products. The FA works as AUM, but does not have all of our retirement assets as rentals, property, brokerage accounts or insurances. I model taxes and investments for short-term only. I have a reasonably good idea on medium term. And fair idea on long term because on how I envision our real properties, active brokerage account, LTCi, and GLWB annuities. I do have some health issues and don't expect to make 85.
I made some good guesses
Ummm
Ymmv

You could model your future best guess in the IORP calculator or the RPM calculator/spreadsheet which are both free.
Always try and keep in mind that its not what you make each year but what you keep so watching your tax liability is part of the game.

My question is what are the factors that one can consider he/she'll be in a higher or lower bracket in retirement?

One major factor is the time gap (if any) between when you stop working and when you start collecting social security. A tricky issue with social security income is it can be completely tax-exempt or up to 85% of it can be taxed.

Will you be getting a pension in retirement?

Depending on how much you have saved up in traditional retirement accounts, RMDs may push you up into a higher tax bracket when you turn 70 1/2.

Another consideration is whether you itemize your tax deductions. For instance, if you're married, have kids and paying a mortgage on your house, you may be using tax deductions that you probably won't be eligible for anymore by the time you retire. On the other hand, you might have more medical expenses you can itemize in retirement then you can now.

Lots of good replies in this thread but this one stuck out as the one I can most relate to. I retired 9 years ago at age 45, so I am living on only my taxable account until my "reinforcements" begin to arrive at age ~60, 6 years from now. Once they (frozen company pension, unfettered access to my IRA, and Social Security) begin arriving in my 60s, I expect my marginal tax bracket to move from today's 15% to something higher, with 85% of the SS benefit being taxable. One's tax bracket is a moving target.

I have been on the edge of itemizing my deductions in the last 9 years. Some years I itemize, others I take the standard. Bunching deductions saves me a few dollars, too.

My question is what are the factors that one can consider he/she'll be in a higher or lower bracket in retirement?

One major factor is the time gap (if any) between when you stop working and when you start collecting social security. A tricky issue with social security income is it can be completely tax-exempt or up to 85% of it can be taxed.

Will you be getting a pension in retirement?

Depending on how much you have saved up in traditional retirement accounts, RMDs may push you up into a higher tax bracket when you turn 70 1/2.

Another consideration is whether you itemize your tax deductions. For instance, if you're married, have kids and paying a mortgage on your house, you may be using tax deductions that you probably won't be eligible for anymore by the time you retire. On the other hand, you might have more medical expenses you can itemize in retirement then you can now.

Thanks for this info. Something to think about.
I don't have a pension, I'll be single and planning not to have a mortgage.

My question is what are the factors that one can consider he/she'll be in a higher or lower bracket in retirement?

One major factor is the time gap (if any) between when you stop working and when you start collecting social security. A tricky issue with social security income is it can be completely tax-exempt or up to 85% of it can be taxed.

Will you be getting a pension in retirement?

Depending on how much you have saved up in traditional retirement accounts, RMDs may push you up into a higher tax bracket when you turn 70 1/2.

Another consideration is whether you itemize your tax deductions. For instance, if you're married, have kids and paying a mortgage on your house, you may be using tax deductions that you probably won't be eligible for anymore by the time you retire. On the other hand, you might have more medical expenses you can itemize in retirement then you can now.

Lots of good replies in this thread but this one stuck out as the one I can most relate to. I retired 9 years ago at age 45, so I am living on only my taxable account until my "reinforcements" begin to arrive at age ~60, 6 years from now. Once they (frozen company pension, unfettered access to my IRA, and Social Security) begin arriving in my 60s, I expect my marginal tax bracket to move from today's 15% to something higher, with 85% of the SS benefit being taxable. One's tax bracket is a moving target.

I have been on the edge of itemizing my deductions in the last 9 years. Some years I itemize, others I take the standard. Bunching deductions saves me a few dollars, too.

scrabbler1,

Why? You could do Roth Conversion now in order to pay lower tax for your tax-deferred money.

My question is what are the factors that one can consider he/she'll be in a higher or lower bracket in retirement?

One major factor is the time gap (if any) between when you stop working and when you start collecting social security. A tricky issue with social security income is it can be completely tax-exempt or up to 85% of it can be taxed.

Will you be getting a pension in retirement?

Depending on how much you have saved up in traditional retirement accounts, RMDs may push you up into a higher tax bracket when you turn 70 1/2.

Another consideration is whether you itemize your tax deductions. For instance, if you're married, have kids and paying a mortgage on your house, you may be using tax deductions that you probably won't be eligible for anymore by the time you retire. On the other hand, you might have more medical expenses you can itemize in retirement then you can now.

Lots of good replies in this thread but this one stuck out as the one I can most relate to. I retired 9 years ago at age 45, so I am living on only my taxable account until my "reinforcements" begin to arrive at age ~60, 6 years from now. Once they (frozen company pension, unfettered access to my IRA, and Social Security) begin arriving in my 60s, I expect my marginal tax bracket to move from today's 15% to something higher, with 85% of the SS benefit being taxable. One's tax bracket is a moving target.

I have been on the edge of itemizing my deductions in the last 9 years. Some years I itemize, others I take the standard. Bunching deductions saves me a few dollars, too.

scrabbler1,

Why? You could do Roth Conversion now in order to pay lower tax for your tax-deferred money.

Maybe, but I am also near the top of the income range to qualify for an ACA subsidy. Doing a Roth conversion would cost me the subsidy which is, in effect, a 10% tax, boosting my overall current tax "rate" to 25%.

My workplace offers Roth 401K in addition to Traditional 401K. I read that Roth is good if you expect that you'll be in a higher tax bracket in retirement. I'm currently in 25% and I'll be in a higher tax bracket prior to retirement.

What about in retirement? DW and I were in the 25% bracket just before I retired this past January, we're now in the 15% bracket due to the lack of my paycheck.

OK, so far so good, but what happens at age 70+ when SS and RMDs start?
Some folks don't plan ahead so well and then are SHOCKED at the increase in "unneeded" income and higher taxes...

If you have a number of years between retirement and reaching age 70.5, you might benefit by using a traditional IRA while in the higher bracket, and then converting some of the traditional IRA to Roth each year while in the lower tax bracket after retirement. RMDs and taxable social security come as a surprise to many people in their late 60s and at 70.5. Roths are an advantage in that case.

I'm glad I found this thread. I'm pondering this very issue lately, but I have 37 years until I hit the RMD age so this may be a futile effort. But, I expect in the next 2 years I'll start to touch the 33% bracket indefinitely and have an average marginal rate of the upper 20s for about 31 years. This is obviously best case scenario and assumes no hiccups in career, family and health. Best case, I'm shooting for ~$5 million in my 401k when I retire. Based on todays RMD tables, I'd be forced to withdrawal nearly $200k annually, even though I wouldn't need that much. I'd say the majority of this RMD will be exposed to ~28% tax bracket (again, based on todays tables, who knows what the future holds). Because of my current marginal tax rate climbing, I've always seen the traditional 401k contributions as being most beneficial, but when I start to look at RMDs I'm not so sure. I think it would be very nice at the time to have a majority in a Roth plan so I'm not forced to withdraw that much. Realistically, I'd have 5 years to convert 401k to Roth 401k and that could possibly create an unacceptable tax burden over those four years, OR, I could just start funneling something like 50% or even 75% of my contributions to the Roth 401k and the remainder to the 401k.

These are the scenarios I'm not confident in running and is making me consider hiring a CFP to evaluate the possibilities and their outcomes.

I suppose I'm confusing terms. If my income touches the 33% bracket I was supposing the "cumulative" or "effective" tax rate would be in the upper 20's. It seems that RMDs could create a tax issue in the future. I based RMD calculations on a Traditional 401k balance of $5,000,000 and at current RMD requirements, it would be about a $200,000 required distribution. This would create a cumulative tax rate of about 18% according to your graph with a marginal rate of 28%. One thing I've been hearing on some message boards is that when folks arrive at RMDs they actually have no way to shield their distributions from taxes i.e. kids are gone, house is paid off etc. So, I wonder if its a matter of finding the right mix of Traditional contributions to keep the marginal rate under 30% and putting the rest into a Roth 401k or some combination thereof.

I suppose I'm confusing terms. If my income touches the 33% bracket I was supposing the "cumulative" or "effective" tax rate would be in the upper 20's. ...
So, I wonder if its a matter of finding the right mix of Traditional contributions to keep the marginal rate under 30% and putting the rest into a Roth 401k or some combination thereof.

I've put most of my money in traditional accounts (90% traditional, 10% Roth). You get the tax break instantly vs. possible break in decades. Maybe it is just me, but I have no idea what tax bracket I will be when I'm retired. Who knows what the brackets will even be then? I don't know how much I will inherit. I don't know when I will retire (shooting for very early, but not sure). I don't know how my investments will perform up to retirement.

That being said, when I retire early, if I feel I will probably enter a higher tax bracket in the future, I will start doing conversions to Roths.

I've put most of my money in traditional accounts (90% traditional, 10% Roth). You get the tax break instantly vs. possible break in decades. Maybe it is just me, but I have no idea what tax bracket I will be when I'm retired. Who knows what the brackets will even be then?...

I agree.
You want to wait till ten, or even better, five years prior to retirement. By then, you may have an idea on what your AGI in retirement might be, compared to your AGI presently.
That's about the best we can do...

I suppose I'm confusing terms. If my income touches the 33% bracket I was supposing the "cumulative" or "effective" tax rate would be in the upper 20's. ...
So, I wonder if its a matter of finding the right mix of Traditional contributions to keep the marginal rate under 30% and putting the rest into a Roth 401k or some combination thereof.

Why, in the case you mentioned does the effective tax rate matter? Perhaps I'll have some of my income tough the 33% bracket, but since income tax is progressive, isn't it the effective tax rate that matters most? Wouldn't a better method to evaluate T v R 401k's be to evaluate likely effective tax rates?

I suppose I'm confusing terms. If my income touches the 33% bracket I was supposing the "cumulative" or "effective" tax rate would be in the upper 20's. ...
So, I wonder if its a matter of finding the right mix of Traditional contributions to keep the marginal rate under 30% and putting the rest into a Roth 401k or some combination thereof.

Perhaps I'll have some of my income tough the 33% bracket, but since income tax is progressive, isn't it the effective tax rate that matters most? Wouldn't a better method to evaluate T v R 401k's be to evaluate likely effective tax rates?

At first glance it does seem that way, but it is not.

You can't go back and change previous years' t vs. R choices, so all the lower rates all already spoken for. Selections that you make this year affect you at marginal rates both now and when you withdraw.

After you have made this year's choice, those amounts become "spoken for" when next year comes around, and you have to look at the new marginal rates when you make next year's choice.

BTW, I think that you will find that being in a higher marginal tax bracket, isn't so bad .
YMMV

That's the way I look at it. If I happen to be in a much higher tax bracket than I thought, I will pay the tax and be grateful.

If you could see what it is the government does with that money you happily pay, I'm not sure you'd be happy. The less money I can avoid paying them legally, the better. That's what makes me happy. Anyhow, if I do end up in a higher tax bracket at retirement, well, those are first world problems.

I suppose I'm confusing terms. If my income touches the 33% bracket I was supposing the "cumulative" or "effective" tax rate would be in the upper 20's. ...
So, I wonder if its a matter of finding the right mix of Traditional contributions to keep the marginal rate under 30% and putting the rest into a Roth 401k or some combination thereof.

Perhaps I'll have some of my income tough the 33% bracket, but since income tax is progressive, isn't it the effective tax rate that matters most? Wouldn't a better method to evaluate T v R 401k's be to evaluate likely effective tax rates?

At first glance it does seem that way, but it is not.

You can't go back and change previous years' t vs. R choices, so all the lower rates all already spoken for. Selections that you make this year affect you at marginal rates both now and when you withdraw.

After you have made this year's choice, those amounts become "spoken for" when next year comes around, and you have to look at the new marginal rates when you make next year's choice.

Does that make sense?

Honestly, no. I'm trying, but these tax concepts are kind of difficult for me to grasp.....

Don't forget IRMAA Medicare B and D premiums. I don't know the brackets for Medicare B, but I got a notice that another bracket has been added for D. My retirement planning was based on working longer and getting larger pensions. I did not know about Medicare B and D IRMAA premiums.

My question is what are the factors that one can consider he/she'll be in a higher or lower bracket in retirement?

One major factor is the time gap (if any) between when you stop working and when you start collecting social security. A tricky issue with social security income is it can be completely tax-exempt or up to 85% of it can be taxed.

Will you be getting a pension in retirement?

Depending on how much you have saved up in traditional retirement accounts, RMDs may push you up into a higher tax bracket when you turn 70 1/2.

Another consideration is whether you itemize your tax deductions. For instance, if you're married, have kids and paying a mortgage on your house, you may be using tax deductions that you probably won't be eligible for anymore by the time you retire. On the other hand, you might have more medical expenses you can itemize in retirement then you can now.

Lots of good replies in this thread but this one stuck out as the one I can most relate to. I retired 9 years ago at age 45, so I am living on only my taxable account until my "reinforcements" begin to arrive at age ~60, 6 years from now. Once they (frozen company pension, unfettered access to my IRA, and Social Security) begin arriving in my 60s, I expect my marginal tax bracket to move from today's 15% to something higher, with 85% of the SS benefit being taxable. One's tax bracket is a moving target.

I have been on the edge of itemizing my deductions in the last 9 years. Some years I itemize, others I take the standard. Bunching deductions saves me a few dollars, too.

If the two rates are equal, the results are identical - it doesn't matter whether the tax is assessed now or in the future. So far so good?

2. The question then arises: which tax rate - marginal or effective?
You have a decision this year: traditional or Roth. If traditional, you subtract from your income and save whatever tax you would have paid on the $18K - in other words, the marginal rate on that $18K. So far so good, correct?

But let's say you don't make a traditional contribution this year. Now fast forward to retirement and withdrawals. Let's say you withdraw 4% of your traditional balance. Presumably you will have some income on which you will be paying tax. If you are paying any tax at all, the 0% bracket is filled, as are any brackets up to the point of your taxable income. All those lower brackets will be filled, regardless of this year's choice. Still ok?

Back to this year, and you do make a traditional contribution. Fast forward again to retirement, when your traditional balance is now a little higher than it would have been. Any extra you withdraw (still taking 4% of the balance) on top of the amount in the previous paragraph will be taxed at your marginal rate, not your effective rate. Is that helpful?

For purists: yes, there are exceptions to the situations above, but one step at a time....

I did my conversions while either working very part time or retired prior to taking SS. However, my tax rates remain high. Also I pay additional Medicare payments related to income. I lowered my taxable dividends somewhat by paying taxes out of a taxable account. However, I keep making money on my taxable investments and have other income streams that keep my tax rates high. Soon we will receive an inheritance that will increase our taxable investments and future tax rates. Municipal bond dividends go into the MAGI calculation so they are not as big a help as we initially thought they would be. Once I reach 70 1/2 I will know how much I have saved in taxes by removing RMDs from the picture.

I am moving money at 64, because at 70 I have to take money out. I ran the numbers with 2.3m I will need to take out 100.000 taxes plus 44000 ss
and a small pension. If I die my wife will get hit hard with tax's maybe up to 28%. By 75 We will be at about 160000 a years. I'm slowly moving into a Roth so I can have about $1500 a month tax free and lower my tax's. I live on about $60000 now.

My question is what are the factors that one can consider he/she'll be in a higher or lower bracket in retirement?

One major factor is the time gap (if any) between when you stop working and when you start collecting social security. A tricky issue with social security income is it can be completely tax-exempt or up to 85% of it can be taxed.

Will you be getting a pension in retirement?

Depending on how much you have saved up in traditional retirement accounts, RMDs may push you up into a higher tax bracket when you turn 70 1/2.

Another consideration is whether you itemize your tax deductions. For instance, if you're married, have kids and paying a mortgage on your house, you may be using tax deductions that you probably won't be eligible for anymore by the time you retire. On the other hand, you might have more medical expenses you can itemize in retirement then you can now.

The tricky thing for me to get my arms around is the social security impact on retirement income. I have read in here for most people it shouldn’t be a big factor. However if you expect the have significant RMD and other income, and have both spouses pulling near the social security max, it seems like it can raise your retirement marginal rates even at higher retirement incomes.

Of course you may be able to mitigate some of that if you retire early and do roth conversions.

Over the years I’ve contributed and converted to Roths such that about 45% of my retirement is in Roth’s. You can debate whether some of those conversions were at an optimal rate, assuming future tax code doesn’t change a lot. The one thing I think I did well was time the conversions near some intermediate market bottoms which lowered the tax bill some what.

Whether or not optimal in retrospect I’m glad I did them. It is nice knowing they are tax free and I really shouldn’t have to worry about them.

The tricky thing for me to get my arms around is the social security impact on retirement income. I have read in here for most people it shouldn’t be a big factor. However if you expect the have significant RMD and other income, and have both spouses pulling near the social security max, it seems like it can raise your retirement marginal rates even at higher retirement incomes.

Of course you may be able to mitigate some of that if you retire early and do roth conversions.

Over the years I’ve contributed and converted to Roths such that about 45% of my retirement is in Roth’s. You can debate whether some of those conversions were at an optimal rate, assuming future tax code doesn’t change a lot. The one thing I think I did well was time the conversions near some intermediate market bottoms which lowered the tax bill some what.

Whether or not optimal in retrospect I’m glad I did them. It is nice knowing they are tax free and I really shouldn’t have to worry about them.

As a rule of thumb I would say if you're going to be in the 15% bracket or lower for the year, do the Roth conversion if practical. If you're going to do a Roth conversion at a higher bracket, I think it would be best to only do it if you're reasonably certain you're going to be in a higher tax bracket in retirement.

The tricky thing for me to get my arms around is the social security impact on retirement income. I have read in here for most people it shouldn’t be a big factor. However if you expect the have significant RMD and other income, and have both spouses pulling near the social security max, it seems like it can raise your retirement marginal rates even at higher retirement incomes.

Of course you may be able to mitigate some of that if you retire early and do roth conversions.

Over the years I’ve contributed and converted to Roths such that about 45% of my retirement is in Roth’s. You can debate whether some of those conversions were at an optimal rate, assuming future tax code doesn’t change a lot. The one thing I think I did well was time the conversions near some intermediate market bottoms which lowered the tax bill some what.

Whether or not optimal in retrospect I’m glad I did them. It is nice knowing they are tax free and I really shouldn’t have to worry about them.

As a rule of thumb I would say if you're going to be in the 15% bracket or lower for the year, do the Roth conversion if practical. If you're going to do a Roth conversion at a higher bracket, I think it would be best to only do it if you're reasonably certain you're going to be in a higher tax bracket in retirement.

I’m not arguing with that. When I did mine 15-20 years ago I was somewhere between 25-31% I don’t recall exactly.

I gave 5k here some of my assumptions and it showed i could be hitting into the 40% plus marginal rate due to social security. Otherwise I’ll probably be in the 25% rate once we pull RMDs and both draw social secuirty (assuming we delay social security) I haven’t run the numbers but perhaps it’s possible if the next 15 years stock returns were really bad and I retired early and did heavy Roth conversions, or maybe draw social security early I could get down to the 15% bracket. While i hear people indicate waiting till 70 is best for social security, i don’t know how higher marginal income tax rates, and/or tax on social security income may affect the desirability of delaying SS

I’m not too worried about it. I suspect tax law and social security will probably change by then anyway.

The tricky thing for me to get my arms around is the social security impact on retirement income. I have read in here for most people it shouldn’t be a big factor. However if you expect the have significant RMD and other income, and have both spouses pulling near the social security max, it seems like it can raise your retirement marginal rates even at higher retirement incomes.

Of course you may be able to mitigate some of that if you retire early and do roth conversions.

Over the years I’ve contributed and converted to Roths such that about 45% of my retirement is in Roth’s. You can debate whether some of those conversions were at an optimal rate, assuming future tax code doesn’t change a lot. The one thing I think I did well was time the conversions near some intermediate market bottoms which lowered the tax bill some what.

Whether or not optimal in retrospect I’m glad I did them. It is nice knowing they are tax free and I really shouldn’t have to worry about them.

As a rule of thumb I would say if you're going to be in the 15% bracket or lower for the year, do the Roth conversion if practical. If you're going to do a Roth conversion at a higher bracket, I think it would be best to only do it if you're reasonably certain you're going to be in a higher tax bracket in retirement.

I’m not arguing with that. When I did mine 15-20 years ago I was somewhere between 25-31% I don’t recall exactly.

I gave 5k here some of my assumptions and it showed i could be hitting into the 40% plus marginal rate due to social security. Otherwise I’ll probably be in the 25% rate once we pull RMDs and both draw social secuirty (assuming we delay social security) I haven’t run the numbers but perhaps it’s possible if the next 15 years stock returns were really bad and I retired early and did heavy Roth conversions, or maybe draw social security early I could get down to the 15% bracket. While i hear people indicate waiting till 70 is best for social security, i don’t know how higher marginal income tax rates, and/or tax on social security income may affect the desirability of delaying SS

I’m not too worried about it. I suspect tax law and social security will probably change by then anyway.

By any chance are yo using todays tax rates and standard deductions with a future forecast (10 -20 yrs) of RMD's?

The tricky thing for me to get my arms around is the social security impact on retirement income. I have read in here for most people it shouldn’t be a big factor. However if you expect the have significant RMD and other income, and have both spouses pulling near the social security max, it seems like it can raise your retirement marginal rates even at higher retirement incomes.

Of course you may be able to mitigate some of that if you retire early and do roth conversions.

Over the years I’ve contributed and converted to Roths such that about 45% of my retirement is in Roth’s. You can debate whether some of those conversions were at an optimal rate, assuming future tax code doesn’t change a lot. The one thing I think I did well was time the conversions near some intermediate market bottoms which lowered the tax bill some what.

Whether or not optimal in retrospect I’m glad I did them. It is nice knowing they are tax free and I really shouldn’t have to worry about them.

As a rule of thumb I would say if you're going to be in the 15% bracket or lower for the year, do the Roth conversion if practical. If you're going to do a Roth conversion at a higher bracket, I think it would be best to only do it if you're reasonably certain you're going to be in a higher tax bracket in retirement.

I’m not arguing with that. When I did mine 15-20 years ago I was somewhere between 25-31% I don’t recall exactly.

I gave 5k here some of my assumptions and it showed i could be hitting into the 40% plus marginal rate due to social security. Otherwise I’ll probably be in the 25% rate once we pull RMDs and both draw social secuirty (assuming we delay social security) I haven’t run the numbers but perhaps it’s possible if the next 15 years stock returns were really bad and I retired early and did heavy Roth conversions, or maybe draw social security early I could get down to the 15% bracket. While i hear people indicate waiting till 70 is best for social security, i don’t know how higher marginal income tax rates, and/or tax on social security income may affect the desirability of delaying SS

I’m not too worried about it. I suspect tax law and social security will probably change by then anyway.

By any chance are yo using todays tax rates and standard deductions with a future forecast (10 -20 yrs) of RMD's?

I assumed modest portfolio growth of around 3% real. I did everything in real terms, so I used today’s tax brackets and standard deductions and exemptions for seniors. I personally didn’t try to estimate the social security % tax impact other than adding 85 percent to determine what tax bracket I got too. It was 5k (the poster in this thread) who ran some numbers I gave him to determine I would be at a 40% marginal rate in retirement.

Basically I assumed somewhere around $1.5 million in tradtional IRAs 15 years from now, in today’s dollars (it is over $1M now and I’m 54), delaying social security to 70 for both of us, and pretty close to maximum social security benefit for both of us since most years we both exceeded SS tax cap. You end up with something around $80k combined social security plus $50-$60k RMDs.

The tricky thing for me to get my arms around is the social security impact on retirement income. I have read in here for most people it shouldn’t be a big factor. However if you expect the have significant RMD and other income, and have both spouses pulling near the social security max, it seems like it can raise your retirement marginal rates even at higher retirement incomes.

Of course you may be able to mitigate some of that if you retire early and do roth conversions.

Over the years I’ve contributed and converted to Roths such that about 45% of my retirement is in Roth’s. You can debate whether some of those conversions were at an optimal rate, assuming future tax code doesn’t change a lot. The one thing I think I did well was time the conversions near some intermediate market bottoms which lowered the tax bill some what.

Whether or not optimal in retrospect I’m glad I did them. It is nice knowing they are tax free and I really shouldn’t have to worry about them.

As a rule of thumb I would say if you're going to be in the 15% bracket or lower for the year, do the Roth conversion if practical. If you're going to do a Roth conversion at a higher bracket, I think it would be best to only do it if you're reasonably certain you're going to be in a higher tax bracket in retirement.

I’m not arguing with that. When I did mine 15-20 years ago I was somewhere between 25-31% I don’t recall exactly.

I gave 5k here some of my assumptions and it showed i could be hitting into the 40% plus marginal rate due to social security. Otherwise I’ll probably be in the 25% rate once we pull RMDs and both draw social secuirty (assuming we delay social security) I haven’t run the numbers but perhaps it’s possible if the next 15 years stock returns were really bad and I retired early and did heavy Roth conversions, or maybe draw social security early I could get down to the 15% bracket. While i hear people indicate waiting till 70 is best for social security, i don’t know how higher marginal income tax rates, and/or tax on social security income may affect the desirability of delaying SS

I’m not too worried about it. I suspect tax law and social security will probably change by then anyway.

By any chance are yo using todays tax rates and standard deductions with a future forecast (10 -20 yrs) of RMD's?

I assumed modest portfolio growth of around 3% real. I did everything in real terms, so I used today’s tax brackets and standard deductions and exemptions for seniors. I personally didn’t try to estimate the social security % tax impact other than adding 85 percent to determine what tax bracket I got too. It was 5k (the poster in this thread) who ran some numbers I gave him to determine I would be at a 40% marginal rate in retirement.

Basically I assumed somewhere around $1.5 million in tradtional IRAs 15 years from now, in today’s dollars (it is over $1M now and I’m 54), delaying social security to 70 for both of us, and pretty close to maximum social security benefit for both of us since most years we both exceeded SS tax cap. You end up with something around $80k combined social security plus $50-$60k RMDs.

I understand - just please note that the 25% rate 20 years back (well actually the 28% back then) began at one half the dollars now.
When you forecast growth in the funds from today there will likely also be growth in the base for each tax bracket as well.

If the two rates are equal, the results are identical - it doesn't matter whether the tax is assessed now or in the future. So far so good?

2. The question then arises: which tax rate - marginal or effective?
You have a decision this year: traditional or Roth. If traditional, you subtract from your income and save whatever tax you would have paid on the $18K - in other words, the marginal rate on that $18K. So far so good, correct?

But let's say you don't make a traditional contribution this year. Now fast forward to retirement and withdrawals. Let's say you withdraw 4% of your traditional balance. Presumably you will have some income on which you will be paying tax. If you are paying any tax at all, the 0% bracket is filled, as are any brackets up to the point of your taxable income. All those lower brackets will be filled, regardless of this year's choice. Still ok?

Back to this year, and you do make a traditional contribution. Fast forward again to retirement, when your traditional balance is now a little higher than it would have been. Any extra you withdraw (still taking 4% of the balance) on top of the amount in the previous paragraph will be taxed at your marginal rate, not your effective rate. Is that helpful?

For purists: yes, there are exceptions to the situations above, but one step at a time....

That's very helpful, thank you. I'm slowly working through this in my brain with the aid of the FIRE spreadsheet you provided. Inputting the knowns (i.e. the budget stuff) is fairly straight forward. Using the Traditional vs Roth portion is a little more tricky though, and using the marginal tax rate calculator is as well. I'd really like to figure out how to run the "what-if" scenarios on the spreadsheet, I'll take another look at it.

As a rule of thumb I would say if you're going to be in the 15% bracket or lower for the year, do the Roth conversion if practical. If you're going to do a Roth conversion at a higher bracket, I think it would be best to only do it if you're reasonably certain you're going to be in a higher tax bracket in retirement.

I’m not arguing with that. When I did mine 15-20 years ago I was somewhere between 25-31% I don’t recall exactly.

I gave 5k here some of my assumptions and it showed i could be hitting into the 40% plus marginal rate due to social security. Otherwise I’ll probably be in the 25% rate once we pull RMDs and both draw social secuirty (assuming we delay social security) I haven’t run the numbers but perhaps it’s possible if the next 15 years stock returns were really bad and I retired early and did heavy Roth conversions, or maybe draw social security early I could get down to the 15% bracket. While i hear people indicate waiting till 70 is best for social security, i don’t know how higher marginal income tax rates, and/or tax on social security income may affect the desirability of delaying SS

I’m not too worried about it. I suspect tax law and social security will probably change by then anyway.

By any chance are yo using todays tax rates and standard deductions with a future forecast (10 -20 yrs) of RMD's?

I assumed modest portfolio growth of around 3% real. I did everything in real terms, so I used today’s tax brackets and standard deductions and exemptions for seniors. I personally didn’t try to estimate the social security % tax impact other than adding 85 percent to determine what tax bracket I got too. It was 5k (the poster in this thread) who ran some numbers I gave him to determine I would be at a 40% marginal rate in retirement.

Basically I assumed somewhere around $1.5 million in tradtional IRAs 15 years from now, in today’s dollars (it is over $1M now and I’m 54), delaying social security to 70 for both of us, and pretty close to maximum social security benefit for both of us since most years we both exceeded SS tax cap. You end up with something around $80k combined social security plus $50-$60k RMDs.

I understand - just please note that the 25% rate 20 years back (well actually the 28% back then) began at one half the dollars now.
When you forecast growth in the funds from today there will likely also be growth in the base for each tax bracket as well.

Don't tax brackets generally rise with inflation? If so, then doing it all on a real basis should give you apples to apples. I think the social security benefits numbers are real, although I'm not 100% sure. I do understand the bracket for taxes on social security do not increase with inflation.

Don't tax brackets generally rise with inflation? If so, then doing it all on a real basis should give you apples to apples. I think the social security benefits numbers are real, although I'm not 100% sure. I do understand the bracket for taxes on social security do not increase with inflation.